USA Has Reached Its Debt Limit

The United States reached its predefined national debt limit Monday morning. That means that the US government no longer is able to meet its obligations by borrowing more money. According to Treasury Secretary Timothy Geithner the nation will default if the Congress doesn’t lift the debt ceiling by August 2.

“Failing to do something about the debt would be far worse in the long-run than failing to raise the debt limit.”

According to TPMDS, the US Congress has ordered that interest must be paid on existing debt, since incoming revenues aren’t sufficient to pay for the services , and the Treasury department is planning a series of ever-more extraordinary measures to pay of its bills.

According to US Treasury Secretary Timothy Geithner, the US may get away with this – but only until August 2.

If Congress doesn’t lift the debt ceiling by then, the country will default, triggering a number of severe economic consequences.

Geithner has already stopped issuing securities to states that help them keep their books in balance and maintain infrastructure, TPMDC writes on their website.

Pointing out that today, the government will defer payments to and investments in federal pension funds – pensions Republicans want federal workers to pay more money into than they currently do.

But despite the serious situation, you won’t get the impression that time is of the essence from congressional Republicans.

They are refusing to raise the debt limit without substantial cuts to government spending and entitlement programs. GOP leaders on Capitol Hill continue to vacillate between claiming that the consequences of default would be smaller than the consequences of not cutting spending.

“Failing to do something about the debt would be far worse in the long-run than failing to raise the debt limit,” says US Senate Minority Leader Mitch McConnell on the Senate floor Thursday.

Admitting that they’re using the threat of a default to make good on long-standing conservative commitments.

“What better time to do something about the debt than in connection with raising the debt ceiling?” McConnell says.

Still, Republicans have thus far set the terms of the debate, at least in the public realm. They insist they will not accept increasing revenues as part of any deal.

They want to implement budget process reforms that will make it easier to cut spending in the future, and say they’ll only raise the debt limit by as much or less than the trillions in spending cuts they’re able to enact as part of a deal.

Underneath that, they’ve expressed willingness to negotiate the precise cuts to discretionary, defense, and entitlement spending, TPMDC highlights.

However, their opening bid – the House GOP budget – includes enormous cuts to Medicare and Medicaid.

House Speaker John Boehner said Sunday that he sees no substantial movement from the Obama administration in his direction, increasing the sense that a deal is still far off.

However, the precise details of negotiations between House and Senate leaders and the White House, led by Vice President Joe Biden, remain tightly held.

“There’s likely a gap between the perceptions presented in public statements and the reality behind the scenes. And that gap will likely grow as we approach August, and the consequences of dithering and the pressure to avoid calamity mount,” The Taking Points Memo concludes.

And perhaps SAXO Bank will hit bullseye with their number one Outrageous Predictions for 2011:

“As we move into the second half of 2011, politicians and pundits increasingly succeed in putting the Fed in the hot seat for having been the critical enabler of the US housing debacle and resulting bank bailout and public debt catastrophe. Meanwhile, the too-big-to-fail banks are back in deep trouble again as their troubled mortgage portfolios once again threaten their solvency. The Fed‟s Bernanke rallies the FOMC to indicate a strong new expansion of monetary policy to once again bail out the troubled banks and/or local governments. Emboldened by the political and popular winds blowing, however, a Ron Paul led challenge of the Fed‟s authority sees the Congress blocking the Fed‟s authority to expand its balance sheet, and sets up an eventual challenge of the Fed’s dual employment/inflation mandate.”


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6 responses to “USA Has Reached Its Debt Limit

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